For much of last week United States grain futures markets were in freefall. For wheat, any prospect that the June rally would take out the May high were dashed, and we appeared to be on target for the market to post a June low under the May low.
We did in fact take out the May low on Thursday night, when futures fell by around 23 US cents a bushel or $A9 a tonne, but that heralded a massive turnaround on Friday night to wipe out those losses.
It is quite normal for the June low to challenge the May low, and even go a bit lower. It coincides with the US harvest gathering pace, and although this year's harvest is slow to date, it is gathering pace and early yield reports have been good.
Equally it is normal for the market to stage a recovery once the May low has been tested, and we certainly saw that with a vengeance on Friday night last week.
There are a few factors at play. The wheat market was in a sharp rally for close to five weeks through April and into May. Weather issues globally saw risk premiums being built into prices. The funds were on the buying side of the equation on all grains.
Eventually rains arrived, whether adequate or not, and eventually funds have tired of buying and sold to lock in profits and to position against the next round of United States Department of Agriculture planting reports at the end of June, when updated corn, soybean and spring wheat acreages will be revealed.
After testing the May low fund buying dried up, with the reduction in open interest from the selloff seemingly leaving the markets more in balance. Rains were in the forecast for the US Midwest going into last weekend, but there was always a risk that the amount of rain would pull back in subsequent forecasts, while the markets were closed for the weekend.
US spring wheat areas are still in drought, and in Canada rains are seen as being too light to relieve dry conditions significantly, with forecast rains also seen as not being able to prevent crop stress from rebuilding.
In Russia, the worst hot and dry winds since 2010 are sweeping across western Russia in particular. It may be too late to take much yield off winter wheat, and will help with ripening, but corn and sunflower crops are vulnerable.
So, seasonally we may be in for another price lift before the cyclical third mid-year low is set in July. While that low may challenge the May and June lows, the market has now shown it is in no mood to give up all its gains for the year.
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